Determinants of Bank Closures: Do Changes of Camel Variables Matter?

27 Pages Posted: 31 Oct 2017 Last revised: 18 Nov 2021

See all articles by Mikko Mäkinen

Mikko Mäkinen

Bank of Finland

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT)

Date Written: October 30, 2017

Abstract

This study examines whether changes in CAMEL variables matter in explaining bank closure. Using a unique set of monthly bank-specific balance sheet data from Russia, we estimate determinants of bank license withdrawals during 2013m7-2017m7. We make two key findings. First, changes in CAMEL indicators are always significantly correlated with probability of bank closure, and the magnitude of parameter estimates decreases with the lag length. Second, while the one-month lagged levels of capital, earnings, and liquidity are significantly associated with the probability of bank closure in the subsequent month, the level of liquidity is the only significant indicator for longer lags. Our key contribution that changes in CAMEL variables matter more than levels is robust to various robustness checks.

Keywords: bank closure, bank failure, Russia, CAMEL indicators

JEL Classification: G01, G21, G32, G34

Suggested Citation

Mäkinen, Mikko and Solanko, Laura, Determinants of Bank Closures: Do Changes of Camel Variables Matter? (October 30, 2017). BOFIT Discussion Paper No. 16/2017, Available at SSRN: https://ssrn.com/abstract=3062513

Mikko Mäkinen (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Laura Solanko

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/solanko_laura/

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